France opposing the U.S. the gas in their own interests

11.05.2016

France unexpectedly made against the United States trying to help a dumping to win a place in the European gas market. Already signed contracts were under threat. Paris is driven by their own interests, not to protect the positions of Gazprom. Especially since the supply of American gas carry serious risks for France.

The French authorities will examine the possibility of a ban of deliveries of shale gas to France, said the Minister of economy and energy Segolene Royal.

“The expansion of the United States on the European gas market could not lead to increased dissatisfaction on the part of Norway and gas lobby”

It became known yesterday that France will become the second European country after Portugal, which will start to buy shale gas from the US. Signed contracts with two French Energogarant – EDF and Engie. The first batch with the American gas should bring 50 tankers in the port of Dunkerque in Northern France this summer. With EDF contract signed for 20 years with the supply of 1 billion cubic meters per year.

According to Royal, according to the EDF contracts and Engie with the United States, imported LNG will be about 40% to account for shale gas. France has a special attitude towards shale gas. It was the first country, which constitutionally banned the extraction of shale gas on its territory in 2011. Paris does not want to contaminate their soil and water, what leads the way in shale gas production – hydraulic fracturing. In light of this prohibition, the question arose: can the French buy foreign shale gas produced similar, banned in France by the way?

“Because the extraction of gas by hydraulic fracturing banned in France for environmental protection, I turned to these two companies for explanations on why they did not show vigilance in this matter,” said Royal, RIA “Novosti”.

“I’ll have to study from the point of view of the law, how exactly can we ban the import of shale gas. In any case, these companies (EDF and Engie) will have to shift to other markets to bring only the gas produced in the traditional way”, she said.

However, the statement looks strange because in France imposed a ban on the drilling and production of shale gas, but not to use ready-made fuel and raw materials, says the head of analytical Department AMarkets Artem Deev. In addition, the composition of shale gas and its application in agriculture is a little different from the traditional, so there’s no environmental risk.

Then why did the French government raised this issue? “The attempt to discern irregularities in the import of shale gas in France, in my opinion, this is only the first swallow in the big game for the protection of the interests of the largest suppliers operating in Europe”, – said Kirill Yakovenko from “ALOR Broker”.

The United States first began the export of shale gas in February of this year. The first recipient of the fuel was not Europe, and Brazil. But in April, the American Cheniere Energy delivered the first batch of American gas to the European continent in Portugal.

While the US is talking about the desire to increase the export of LNG to the European market. In particular, they are willing to help in the construction of a floating terminal for reception and storage of LNG off the coast of Croatia (near Krk island) and Greece. Supplied to these terminals the gas can go to Bulgaria, Hungary, Romania, Moldova, Serbia and Baltic countries, as well as to Ukraine, told the American state Department special envoy for energy Amos Hochstein.

Of course, the main contender in the European market for us LNG is pipeline gas from Russia, and Norwegian LNG. Russia and Norway have almost the same share in the European gas market, taking a third of the market.

“Supplied through the pipes of Russian and Norwegian gas is more than twice cheaper shale, the cost of which increase the costs of liquefaction, transportation and regasification,” – said Yakovenko. So the Europeans want to buy us LNG, the United States had to make its prices lower than those of Russia and Norway. As a result, U.S. LNG in Europe is sold below its cost. But for the us, the main thing now is to get rid of overproduction of the fuel in their own market.

“The fact that the domestic US market there is now a severe crisis of oversupply, which leads to the fact that mining companies are forced to reduce prices and to operate on verge of profitability. The only way to balance the domestic market is the “dumping” of excess to foreign markets, including European, – explains Kirill Yakovenko. – The price of exported gas is not as important as the bulk of the profits companies gain from realization of its products on the American market, the main thing is to get rid of excess supply and thus increase prices in the country.”

Through dumping the US can upset the delicate balance of power suppliers in Europe. And the biggest loser may be not Gazprom, and Norway. “If Russia’s loss of the European market is not so significant a problem if you have the Eastern vector of development of supply, Norway has no such alternatives. The expansion of the United States on the European gas market could not lead to increased dissatisfaction on the part of Norway and gas lobby,” says Yakovenko. Thus, the French authorities are primarily to protect the interests of Norway and Russia, demanding from their Energogarant to refuse to import shale gas from the US.

“A price war with the US in the current environment is ineffective because of LNG to the us and so is sold at a price below cost. Therefore, the only correct decision in this situation is to connect the administrative and legal mechanisms,” concludes Yakovenko.

The interest of France is also visible. It is now the Americans are willing to give it LNG at least at symbolic prices. However, after due to dumping they will be able to take away serious market share, the United States will raise prices to the skies. Another option is once the American economy will return to growth and gas consumption in the country will rise again, the supply of LNG to Europe might stop or become unstable. In addition, the production of shale gas in the US has already begun to fall.

At the same time for supporting the traditional gas France may be able to count on new discounts from their longtime partners, says Deev. The only question that remains is whether the French authorities legally defend the ban on the import of shale gas.